IEEFA Reports: Uganda’s Oil Could Undermine Public Debt Sustainability; Climate-Resilient Electrified Industrialisation Seen As Safer Alternative

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The development of Uganda’s oil industry has long been promoted as a potential driver of economic transformation. However, new analysis from the Institute for Energy Economics and Financial Analysis (IEEFA) suggests that delays, cost overruns, and changes in global oil and energy markets may prevent investors from seeing expected returns and limit the economic benefits for Uganda.

According to the IEEFA reports, the long-term transformative potential of Uganda’s oil sector is uncertain, especially given the country’s weakening public finances. The analysis indicates that sustained investment in climate-resilient, electrified industrialization could provide a lower-risk alternative for using limited oil revenues compared to continued large-scale investment in the oil sector.

The first report, Reassessing Oil in Uganda: How Do Investments in Uganda’s Oil Industry Stand Up in an Accelerating Global Transition, examines the expected financial and economic returns from Uganda’s oil industry as it approaches first production. It also considers how the global shift toward low-carbon energy will affect these outcomes. The report finds that delays in developing the oil sector, combined with the accelerating global energy transition, could result in significantly lower fiscal benefits for Uganda than initially anticipated.

Matthew Huxham, an independent consultant and co-author of the report, noted that Uganda has an increasingly narrow margin for error in the use of public resources. He explained that while investing in the refinery could reduce the country’s import bill, it could also compromise public debt sustainability and long-term development. In his view, the country risks trading energy dependence for capital dependence.

The second report, Climate-Resilient Development in Uganda: How a Global Transition and Fiscal Constraints Could Influence Uganda’s Development Choices, highlights the risks associated with further public investment in the oil sector. The report emphasizes that incorporating climate risk into planning will be essential for the government to achieve the economic prosperity promised to citizens.

Gaurav Upadhyay, an IEEFA energy finance analyst, stated that Uganda’s development decisions will increasingly be influenced by fiscal conditions and climate-related financial risks. He suggested that careful prioritization of public spending is critical. According to the analysis, a diversified investment strategy focused on climate-resilient, electrified industrialization could offer a safer path to income growth and job creation than large, debt-intensive commitments in the oil industry.

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